U.S. Auto Sales Head Toward Records as Carmakers Pour on Deals

(Bloomberg) -

Automakers, already poised to break U.S. sales records for both November and the year in a strengthening economy, are leaving nothing to chance: They’re boosting rebates and other deals in an effort to swipe market share from rivals.

Aided by offers ranging from zero-percent financing and rebates to Ford’s Friends & Neighbors discounts, the carmakers spent 6 percent more this month on incentives than they did a year ago, according to TrueCar Inc., a vehicle pricing research firm. The annualized sales pace for November may reach 18.2 million cars and light trucks, according to the average of 12 analysts’ estimates compiled by Bloomberg.

Why the spendthrift marketing? Automakers, like retailers, have started kicking off their year-end sales in November. Traditionally, December has been the time to buy a new vehicle. Now, with carmakers trying to steal buyers from each other, they have started their offers a month early.

“It used to be that the time to buy was (the last week of the year): Everything was on sale; people were off,” said Jeremy Anwyl, an independent auto-industry consultant in Las Vegas. “It wouldn’t be a bad thing if we pulled our foot off the gas and let sales slow down a little bit because it’s getting expensive to keep them where they’re at.”

When automakers report monthly sales Tuesday, the industry may show a decline in total vehicle sales of 1.6 percent, according to an average of five analyst estimates. That is mostly because there were two fewer selling days than a year ago. The forecast includes gains of 2.9 percent for General Motors and 3.2 percent for both Ford and Fiat Chrysler Automobiles.

Consumers were buying cars at a fast rate even before the deals started coming, but the November rebate spree has clearly helped. The lowest estimate for the annualized sales rate, from research firm LMC Automotive, is for 17.7 million vehicles, which would still be a record for the month. With a strong second half, full-year auto sales are on pace to either match or beat the record of 17.4 million vehicles set in 2000, said Eric Lyman, TrueCar’s vice president of industry insights.

Automakers are getting help from the U.S. economy. Employers may have added 200,000 jobs in November after a payroll gain of 271,000 in October that was the biggest this year, according to the average estimate in a Bloomberg survey of economists. The Commerce Department last week said the economy grew at a faster pace in the third quarter than previously reported. Investors have raised to about 72 percent the probability of an interest-rate increase by Federal Reserve policymakers in December, the federal funds futures market shows.

One reason automakers are being so aggressive anyway is that industry forecasts now indicate sales may start to peak next year or in 2017. The manufacturers want to grab as much market share as possible now, Lyman said.

“We could be seeing the last big push by carmakers before the market softens,” Lyman said. “It’s a case of automakers making hay while the sun shines.”

While there’s little doubt that the industry would be having a great year even without incentives, carmakers are getting more competitive with offers, said Alan Batey, president of GM North America.

GM raised its average incentive per vehicle 6 percent in November, in line with the industry’s increase, according to TrueCar. Other increases from a year earlier included 14 percent for Toyota Motor Corp., which has deals including zero-percent financing on its Camry sedan, and 13 percent each for Hyundai Motor Co. and Fiat Chrysler, TrueCar said.

The industry average in November was more than $3,000 a vehicle, according to TrueCar.

“There are still many old cars on the road so there will be continued strong demand,” Batey said in an interview at the Los Angeles Auto Show. “We want to maintain discipline, but some competitors have dialed incentives up.”

Automakers have another reason to boost deal spending: While pickups and sport-utility vehicles are in demand, cars aren’t selling, because gasoline is cheap. So the companies need to spend a bit more to keep deliveries of the more fuel- efficient vehicles going. BMW AG’s Mini brand has advertised $2,000 rebates.

Ford kicked off the year-end market-share competition with its Friends & Neighbors promotion, which offers as much as $2,000 on top of other incentives. The program started Nov. 3 and runs until Jan. 4. Other companies have also been spending.

“We as an industry learned a lot of tough lessons during the Lehman Brothers shock and the years that came after that,” said Fred Diaz, senior vice president of sales for Nissan Motor Co.’s North American unit. “I like to believe that as an industry, we’re not going to allow things to get to the level of epic incentives that we used to have back then. But of course the market is competitive, the market is growing and everyone wants their fair share – or unfair share – of the pie.”